HW_08_Solutions

HW_08_Solutions - Solutions to Homework 8 Raffaele B. Mari,...

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Solutions to Homework 8 Due November 4, 2010 Raffaele B. Mari, CPA Econ 25 – Econ of Acctg. EXERCISE 8-11 (a) Receivables turnover ratio = $35,214 ($3,942+ $3,516)/2 = 9.4 times Average collection period = 365 days 9.4 =38.8 days (b) Accounts receivable comprise 59% ($3,942/$6,629) of the company’s total current assets. This is certainly a material component. (c) The balance in the allowance account decreased $8 million ($136 – $144) while its accounts receivable increased $418 million ($4,078 – $3,660). As a result, the allowance for uncollectible accounts decreased from 3.9% of accounts receivable in 2006 to 3.3% in 2007. EXERCISE 8-12 (a) At first glance it appears that Garcia’s liquidity had deteriorated over the past year since the company’s current ratio has fallen from 1.5:1 to 1.3:1. However, it is taking the company less time to collect its accounts receivable as evidenced by the higher receivables turnover ratio. The company also appears to be moving its inventory more quickly as evidenced by the higher
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HW_08_Solutions - Solutions to Homework 8 Raffaele B. Mari,...

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